XBRL holds promise for sleuths at SEC

We hope we would be able to use a more data-intensive disclosure model to more intelligently monitor thousands of companies, so that we can direct our activity toward the highest-risk areas.'

'Corey Booth, SEC CIO

Zaid Hamid

The Securities and Exchange Commission is testing an e-data format to improve how fast it uncovers corporate fraud and suspiciously creative accounting.

Widespread use of Extensible Business Reporting Language by SEC and publicly held companies would enable the agency to scrutinize corporate financial information more effectively, said SEC CIO Corey Booth.

"What we would anticipate is that the SEC would be in a better position to analyze cases where financial ratios are outside of acceptable norms, be able to dig down more fully into footnotes and other detailed disclosure and more quickly identify areas of concern," he said.

Core definition for XBRL

XBRL standardizes data so regulators can make 'apples-to-ap-ples' comparisons, according to an in-dustry definition.

Under the Interactive Financial Data Initiative, SEC encourages companies to submit their annual reports and other financial statements in XBRL. SEC analyzes corporate statements filed in XBRL through the agency's EDGAR, or Electronic Data Gathering, Analysis and Retrieval, system.

Corporations have been slow to adopt XBRL. Only nine companies have filed their financial statements to SEC in the advanced format as part of the voluntary pilot, which started in April, Booth said. SEC has not decided how long the pilot will last or if it would evolve into a mandatory program.

Corporate filers have told SEC that the new format requires more effort than current filing procedures. But Booth said it does not require programming skills or understanding of XML or XBRL.

Corporations currently transmit their filings in ASCII and HTML-enhanced text. Although filed electronically through the EDGAR system, users often print out the filing, such as a lengthy annual report, and then type the numbers needed for analysis in a Microsoft Excel spreadsheet.

The key is to make financial information filed with SEC more analytically useful both to the agency and the public. SEC is trying to help shape and accelerate this evolving standard, Booth said.

"SEC is passionate about its role in greasing the wheels of the securities market. Anything we can do to put better, more useful information in the hands of investors is something that we should do," he said.

SEC now is combing through comments received as a result of a request for information in the fall that outlined a range of technical issues associated with the XBRL initiative. They included creation of XBRL documents, how they are presented, validated and analyzed. If SEC finds significant innovations are available, it will consider contracting for them, Booth said.

If a large number of companies were to file in XBRL, it would reduce the time it takes for SEC to review financial filings for full financial disclosure.

"We hope we would be able to use a more data-intensive disclosure model to more intelligently monitor thousands of companies, so that we can direct our activity toward the highest-risk areas," Booth said.

Eliminating the paper chase

The idea behind XBRL is to avoid paper- and labor-intensive steps. "The ultimate intent would be to allow people to directly feed financial data into their spreadsheets or financial analysis applications so they avoid errors or retyping associated with analyzing the numbers," Booth said.

SEC reconfigured EDGAR to accept, validate and distribute the XBRL-formatted material. SEC's biggest challenge was validating that the material that companies were calling XBRL actually met the integrity checks of an XBRL document.

That meant Northrop Grumman Corp., which manages EDGAR, had to change the language in the existing application and add modules, such as for validation.

SEC relies on commercial providers for validation, but Booth did not want to disclose their identities to avoid influencing the nascent market.